CFTC Being Forced to End Silence Over Prediction Markets

The battle over the legality of sports prediction markets seems to be coming to a crescendo, meaning the Commodity Futures Trading Commission (CFTC) will soon be forced to take a stance.

The regulator ended its years of silence on the controversial markets when it sent out an advisory note. The note didn’t confirm or deny the regulators' support for the industry, but did warn operators to prepare for market restrictions. It showed that the CFTC is taking lawsuits and complaints from states seriously, and may be open to enforcing bans in markets that request them.

The CFTC’s refusal to back up operators like Kalshi is a bad sign for the industry, though that could change once a new leader is elected.

CFTC Shuts Down Kalshi Argument

While the advisory note didn’t mention Kalshi by name, it did refer to an argument the operator has been using in court. 

Kalshi had insisted that the CFTC would penalize them if they stopped operating in specific markets. The regulator emphasized that this was not the case, and it has no plans to impose similar requirements in the future. Instead, the CFTC appears to be preparing to limit markets. 

Now, attorneys for Kalshi will need to scramble to rebound from the regulator’s rebuttal of their defense.

Sleeper Files Lawsuit Against CFTC

While the bipartisan pressure from states, tribes, and the American public to crack down on sports prediction markets is mounting, operators are also applying pressure from the other side.

DFS giant Sleeper has filed a lawsuit against the regulator over its delayed application to become a prediction market provider. They argue this was done without explanation, preventing them from leveling the playing field with rivals like Underdog.

The lawsuit places the CFTC squarely in the middle of the debate and will soon compel it to take more action. 

Will Any of This Matter?

The importance of the CFTC’s note cannot be understated, but the truth is, it may not matter. The regulator has only two of its five chair positions filled as the White House attempts to find a nominee that can gain approval. Their first choice, Brian Quintenz, encountered too much opposition, prompting them to withdraw the nomination. 

We don’t know who the next nominee will be, but it remains very likely that they will select another ally of prediction markets. Given the White House’s financial ties to the industry, it's hard to imagine the new head of the CFTC will support the recent advisory note.